Important Update: The Corporate Transparency Act (CTA) created the Beneficial Ownership Reporting rule, which requires most small corporations and LLCs to register with the Treasury’s FinCEN or face steep penalties. The National Small Business United challenged CTA as unconstitutional and on March 1, 2024, a district court agreed. The court said the CTA’s policy, aimed at preventing financial crimes, might be good, but that doesn’t make it constitutional. At this time, the impact on registration is unclear. A “reporting company” that was in effect prior to 2024 may want to take a wait-and-see approach before registering; such registration has a December 31, 2024, deadline. A “reporting company” that’s formed in 2024 may want to register to protect their registration status in case the lower court’s decision is overturned and the reporting rule is ultimately held to be constitutional.
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Several months ago, I posted a blog outlining the new rule from the Corporate Transparency Act of 2021 that became effective on January 1, 2024. It’s been estimated that about 32 million small businesses need to register, and that about 400,000 did so in January 2024. As I speak to small business owners, I learn that most have not heard about this rule, much less know what they need to do now. To help expand awareness and understanding, here’s a revised version of the earlier post.
Background
The federal government recognizes that “illicit actors frequently use corporate structures such as shell and front companies to obfuscate their identities and launder their ill-gotten gains through the U.S. financial system.” To enable the government to catch and penalize these bad actors—drug dealers, money launderers, foreign operatives, and others—owners must provide their personal information. This reporting requirement is the beneficial ownership information reporting rule.
Who has to report?
If your business is a reporting company and is not exempt, you must submit information about beneficial owners.
- Reporting company. A reporting company is one that registers with a state to do business. This means corporations—C or S—and limited liability companies, limited liability partnerships, limited liability limited partnerships, business trusts, and most limited partnerships, regardless of size, are subject to this requirement. It doesn’t apply to sole proprietorships, independent contractors, and general partnerships. There are 23 exempt categories exempt from reporting, most notably “large operating companies.” These are companies employing more than 20 employees on a full-time basis in the U.S., having more than $5 million in gross receipts, and having an operating physical presence at a physical office within the U.S.
- Beneficial owner. A beneficial owner is any individual who, directly or indirectly, either exercises substantial control over a reporting company or owns or controls at least 25% of the reporting company’s ownership interests.
When must the report be made?
The deadline for filing depends on when the business was or is formed, or there is a change in beneficial ownership:
- A business that was formed prior to 2024 has one year to register (i.e., any time during 2024).
- A business formed in 2024 must do so within 90 days of formation.
- A business formed after 2024 must do so within 30 days of formation.
- A change in beneficial ownership of a company requires a new registration to be filed within 30 days.
The clock starts at the earlier of the date on which the reporting company receives actual notice that its creation (or registration) has become effective; or a secretary of state or similar office first provides public notice (e.g., through a publicly accessible registry), that the domestic reporting company has been created or the foreign reporting company has been registered.
Reporting is a one-and-done chore…unless you need to update or correct information.
What must be reported?
The report requires certain personal information about each beneficiary owner:
- The individual’s full name
- Date of birth
- Current residential or business street address
- Unique identifying number from an acceptable identification document, such as a driver’s license or passport or a FinCEN identifier (a unique number issued to an individual upon request as noted below).
How to make the report?
You submit the information through the FinCEN BSA E-Filing system. Click on BOI E-Filing. If you need help, there are filing instructions you can download. There is no filing fee.
You may choose to create a FinCEN ID to simplify reporting, but this is not required.
What are the consequences for failing to report?
Failure to comply with this obligation can result in severe penalties:
- Civil penalties of $500 per day ($10,000 maximum penalty)
- Criminal penalties of up to 2 years imprisonment.
Final thought
Reporting is up to you if you’re a beneficial owner of a non-exempt reporting company. Your attorney may assist you, but this isn’t necessary. Whether your CPA can assist you is unclear (it seems to depend on your state). But whatever, don’t fall victim to scams seeking to help you by obtaining your personal information. Keep in mind that FinCEN won’t be contacting you, so if you receive an unsolicited email or letter about beneficial ownership information reporting, don’t respond!!!
